Crypto

October 31, 2018 06:15 AM GMT 

Update: Bitcoin, Cryptocurrencies and Blockchain 

James Faucette, Betsy Graseck, Sheena Shah 

October 31, 2018 

Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware 

that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan 

Stanley Research as only a single factor in making their investment decision. For analyst certification and other important disclosures, refer to 

the Disclosure Section, located at the end of this report. 

BITCOIN DECRYPTED! A BRIEF TEACH-IN AND IMPLICATIONS OCTOBER 2018 1

Summary of the Last 6 Months 

1. Bitcoin/Cryptos: Rapidly morphing thesis 

2. Bitcoin/Crypto prices fall—Results: 

a) Not surprising: trading volumes fall (generally), news flow/interest growth slows 

b) May look surprising but shouldn’t be: electricity consumption increases, still active 

(albeit slowly) ICO market (but moving to unregulated geos) 

c) Surprising: New fund formation strong, futures grow 

3. ICO’s are largely failing, and failing fast. But not going to $0. Nobody seems to be 

noticing accumulating massive losses. 

4. Blockchain trials spread within financial services, but benefits mainly unclear 

5. Early blockchain application uses: cross-border transfers, shipping and trade finance, 

reinsurance. 


Bitcoin/Crypto: Rapidly Morphing Thesis 

Overarching: A better world through decentralization 

I. What has happened with Bitcoin 

First: Bitcoin as digital cash: untraceable but full confidence in value (2009-2016) 

Then: Bitcoin as antidote to incumbent financial system and central bank (2010-2017) 

Then: Bitcoin as replacement for existing payment system (2010-2017) 

Then: Bitcoin & Cryptos as new fundraising and capital allocation mechanisms (2015-2018) 

Then: Bitcoin as store of value: Gold alternative (2017-2018) 

Then: Bitcoin disruption advantaged refuge for depreciating currency (Spring – Summer 2018) 

Now: Bitcoin & Cryptos as new institutional investment class (2017-Present) 


I. What has happened with Bitcoin 

Bitcoin/Crypto: Rapidly Morphing Thesis 

Digital Cash: Untraceable but full Confidence 

2009 2016 

Incumbent Financial System Antidote 

2010 2017 

Replacement Payment System 

2010 2017 

New Fundraising and Capital Allocation Mechanisms 

Store of Value 

Disruption Advantaged Refuge for Depreciating Currency 

New Institutional Investment Class 

2015 2018 

2017 2018 

Spring 2018 Summer 

2017 Present 


Size of the Cryptocurrency market and liquidity 

II. Bitcoin’s Market & Liquidity 

• Bitcoin and Ethereum Value 

Bitcoin value ($) 

25,000 

20,000 

15,000 

10,000 

5,000 

0 

Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 

Ethereum value ($) 

1,600 

1,400 

1,200 

1,000 

800 

600 

400 

200 

0 

Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 

Source: blockchain.info, Morgan Stanley Research 



• Trading volumes falling with prices 


Bitcoin Daily Trading Volume ($mn) 

6,000 

5,000 

4,000 

3,000 

2,000 

1,000 

0 


Ethereum Daily Transaction Count (thousands) 

1,600 

1,400 

1,200 

1,000 

800 

600 

400 

200 

0 

Jan-16 Jun-16 Nov-16 Apr-17 Sep-17 Feb-18 Jul-18 




• 54% of total cryptocurrency value is in bitcoin 

• Over $200bn spread over 2000 coins/digital assets 


# Name Symbol 

Price 

(USD) 

Total Float 

(USDbn) 

Total Float 

(% total) 

Volume 24h 

(USDmn) 

Supply 

(USDmn) 

Supply 

(% max) 

Max 

coins 

(mn) 

1 Bitcoin BTC $6,477 112 54 3281 17.3 83% 21 Y 

2 Ethereum ETH $204 21 10 1176 102.8 N/A No Y 

3 XRP XRP $0.46 18 9 281 40206 40% 100000 N 

4 Bitcoin Cash BCH $440 8 4 254 17.4 83% 21 Y 

5 EOS EOS $5 5 2 333 906.2 N/A No Y 

6 Stellar XLM $0.23 4 2 37 18895 N/A No N 

7 Litecoin LTC $52 3 1.5 285 58.9 70% 84 Y 

8 Tether USDT $0.99 2 0.9 1797 1926.4 N/A No N 

9 Cardano ADA $0.07 2 0.9 13 25927 58% 45000 Y 

10 Monero XMR $106 2 0.8 12 16.5 N/A No Y 

Mined? 

Source: Coinmarketcap.com, Morgan Stanley Research 



What is bitcoin traded against? 

Moving increasingly towards trading vs the stable coin USD-Tether (USDT). 

Half of bitcoin trading is versus a digital asset now. 

Bitcoin trading by currency 

(25-Oct-18,1m av) 

Latest (25-Oct-18, 1m av) 

Crypto 

52% 

Fiat 

48% 

Source: CryptoCompare, Morgan Stanley Research 



What is bitcoin traded against? 

2017 saw a transition away from DM fiat currencies towards stable coins. 

EM fiat currencies are a small proportion of total trading volumes. 

EUR, 

JPY, 3.6% 

8.0% 

Bitcoin trading by coin 

(25-Oct-18, 1m av) 

BCH, 

0.9% Others, 

3.2% 

KRW, 

13.6% 

USD, 

20.1% 

USDT, 

50.7% 




Rise of the Stable Coin 

Definition: Digital coin/cryptocurrency that has aims to have a stable value versus a known counterpart, 

keeping volatility low. Typically valued against fiat currencies, commodities and crypto assets. 

Examples 

- USDT (US Dollar Tether) – trades around 1 US dollar. Company issues USDT into the market and 

puts one USD into a bank. All issued digital coins are backed by USD. 

- USDC (USD Coin) – trades around 1 US dollar. Created by Coinbase and Circle. Aims to provide a 

liquid digital solution for trading crypo-assets that follows the US financial regulation. 

- DGX (Digix Gold Coin) – trades with one gram of gold in USD. Gold is held in Digix’s Singaporean 

bank and audited by a French certification company. 

Why not just trade the counterpart (USD, gold, etc)? Benefits from blockchain technology so some 

consider as a digital store of value. Easier to get digital exposure to assets like gold which are expensive 

to transport and store. 




Rise of the Stable Coin 

What developments to watch? 

USDT took an increasing share of BTC trading volumes as cryptocurrency prices started falling. This 

occurred because many exchanges only trade crypto->crypto and not crypto->fiat. Trading crypto->fiat 

requires going through the banking sector which charges a higher fee. Also as bitcoin prices fell, so did 

most all other coins so if owners wanted to come out of bitcoin holdings, they needed to go to another 

asset which was closer to the valuation of the US dollar. 

Many large cryptocurrency exchanges and companies 

are creating their own stable coins, part of the next wave 

of development over coming years. 

Types of stable coins 

Similar to the FX world, not all stablecoins will survive so 

we watch for ones with the lowest transaction costs, 

highest liquidity and defined regulatory structure which 

will all increase adoption. 

Source: Blockchain.info, Morgan Stanley Research 



Why is bitcoin stable? 

• The realised volatility of bitcoin has fallen to the lowest level since the start of 2017. 

• As the cross crypto correlation stays high. 

• Price stability comes are markets wait for the next technological development that 

increases adoption of the underlying asset or derivative. 

Source: Macrobond, CryptoCompare, Morgan Stanley Research 


Bitcoin bear market: eased for now? 

Breakdown of 

the bear market 

Bitcoin has tracked the peaks 

and troughs from Nasdaq in 

the year 2000. Question now 

is whether the bear market is 

coming to an end in the way 

the Nasdaq’s did? 

20000 5600 5600 

5100 

18000 5100 

4600 

16000 4600 

4100 

14000 

4100 

3600 3600 

12000 

3100 3100 

10000 

2600 2600 

8000 

2100 2100 

6000 

1600 1600 

4000 

1100 

2000 

600 600 

0 

Nasdaq composite 

Bitcoin (left (right axis) 


Peak Trough Peak Trough Peak-Trough Trough-Peak Peak-trough Trough-peak 

18-Dec-17 22-Dec-17 19511 10776 4 -45% 

05-Jan-18 17-Jan-18 16933 9186 12 14 -46% 57% 

29-Jan-18 06-Feb-18 11785 5922 8 12 -50% 28% 

06-Mar-18 06-Apr-18 11671 6514 31 28 -44% 97% 

04-May-18 29-Jun-18 9795 5791 56 28 -41% 50% 

25-Jul-18 14-Aug-18 8480 5887 20 26 -31% 46% 

05-Sep-18 26-Oct-18 7406 6383 51 22 -14% 26% 

Average 26 22 -39% 51% 

Nasdaq 

20000 

18000 

16000 

14000 

12000 

10000 

8000 

6000 

4000 

2000 

0 

Bitcoin 

Bitcoin 

Source: Bloomberg, Morgan Stanley Research 



Retail investors stay put as institutional investors get involved 

• Cryptocurrency fund AUM US$7.11bn (CryptoFundResearch estimate). 

• Types: 48% hedge fund, 48% venture capital, 3% private equity. 

• Location: 50% US, 9% China/Hong Kong, 6% UK. 

250 

200 

150 

100 

50 

0 

Number of cryptocurrency funds created 

220 

198 

107 

31 32 

45 

Prior 2014 2015 2016 2017 2018e 

8000 Crypto Assets Under Management (USDmn) 

7110 

7000 

6000 

5860 

5580 

5000 

4000 

3000 

2000 

2200 

1000 190 380 

675 

0 


Source: CryptoFundResearch , Morgan Stanley Research 


Previous fundraising via ICOs is being liquidated 


• A large proportion of newly created digital coins (ICOs) were issued in exchange for ETH (Ether). 

• Companies issuing new coins planned to use the funds to pay for research and development. 

• ETH valuation losses this year have caused some companies to liquidate ETH (into USD), putting 

downward pressure on the coin. 

• Next development watched is the creation of STO (security token offerings or regulated ICOs) 

ETH liquidated (rhs) 

Source: : Santiment.net, Morgan Stanley Research 


III. Unanticipated problems/limits 

Bitcoin Thesis Evolution 

Thesis break down: Bitcoin as Digital Cash 

2009 2016 

- By 2016, pretty clear that having a permanent record of transaction eliminates 

the anonymity 

Response: Monero, Zcash, Bitcoin Private, etc. 




Thesis break down: Bitcoin as Digital Cash (cont.) 

2009 2016 

Hacks and losses: Sorry about that, no recourse 

- Coinrail, Jun 2018, $40mm 

- WSJ flagged 271 ICOs, which cumulatively raised over 

$1bn, for having plagiarized investment documents, 

missing/fake executive teams, etc. Investors have 

claimed $273mn of losses in these projects. 

- Titanium, April 2018, $21mn 

- LoopX, Feb 2018, $4.5mn 

- PlexCoin, Dec 2017, $15mn 

- NiceHash, Dec 2017, $63mn 

- Bitfinex, Aug 2016, $72mn 

- Mt. Gox, Feb 2014, $487mn 

Over $630mn total, not including other cryptocurrencies 

Response: Coinbase, others start to assume bank type responsibilities 




Thesis break down: Incumbent Financial System Antidote 

2010 2017 

Investment tenet: Limited quantity—21M 

• Why it is failing: Anybody can create a “hard fork” of 

the open source code, which in turn can create a new 

currency for those that already hold Bitcoin. We view 

these hard forks as being like stock splits or new 

class creations. 

Bitcoin’s Hard Forks: 

1 Aug 2017—Bitcoin Cash 

24 Oct 2017—Bitcoin Gold 

24 Nov 2017—Bitcoin Diamond 

12 Dec 2017—UnitedBitcoin 

12 Dec 2017—Bitcoin X 

12 Dec 2017—Super Bitcoin 

28 Feb 2018—Bitcoin Private 

But unlike a stock split, the fork is not lowering 

the price per Bitcoin 




Thesis break down: Replacement Payment System 

2010 2017 

Investment tenet: New electronic payment system for 

underbanked—only need a phone. 

Why it is failing: Financial inclusion is of 

increasing priority for all payment players. The 

new QR-based payment schemes in India show 

that reaching the underbanked can be done 

much less expensively than Bitcoin. 

Investment tenet: Become part of the global financial 

system fabric. 

Why it is failing: the high costs of operating a 

fully trustless system is pushing early players to 

balkanize systems into trusted 

blockchains/distributed ledgers. 




Thesis break down: Replacement Payment System (cont.) 

2010 2017 

Virtually no acceptance among US eCommerce merchants 

Bitcoin acceptance among top 500 eCommerce merchants 

500 

400 

300 

200 

100 

0 

5 5 5 5 3 3 3 4 4 4 4 

1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 

Source: Morgan Stanley Research 




Thesis break down: New fundraising and capital allocation mechanisms 

Total global investment in fintech companies ($bn) 

50 

47 

2015 2018 

40 

30 

20 

10 

9 

6 4 

12 

29 

25 

35 

ICOs 

Asia 

Europe 

US 

Estimated ICO Capital Raised Over Month (USDmn) 

3000 

2500 

0 

2010 2011 2012 2013 2014 2015 2016 2017 

2000 

1500 

1000 

500 

0 

M A M J J A S O N D J F M A M J J A S 

2017 2018 

Source: Token Economy, KPMG, Morgan Stanley Research 




Thesis break down: New fundraising and capital allocation mechanisms (cont.) 

2015 2018 

2017 ICOs by Status 

Capital Raised by ICOs ($B) 

12 

Defunct Coins 

Active ICOs 

Failed since 

ICO 

32% 

Failed at 

Funding 

32% 

Active ICOs 

36% 

10 

8 

6 

4 

2 

0 

$1.62B 

$1.30B 

$9.39B 

$5.85B 

2015 2016 2017 2018 

• Approximately 32% of ICOs failed after raising money in 2017. They managed to raise $1.3B. 

Source: DigRate, Morgan Stanley Research 


Jan-16 

Mar-16 

May-16 

Jul-16 

Sep-16 

Nov-16 

Jan-17 

Mar-17 

May-17 

Jul-17 

Sep-17 

Nov-17 

Jan-18 

Mar-18 

May-18 




2015 2018 

ICOs vs. Startups 

0% 20% 40% 60% 80% 100% 

Startups 25% 

Fail within the first year 

ICOs* 

64% 

Startups 

71%-75% 

Fail over 10-yr period 

? 

Number of ICOs that Failed Before/After ICO 

200 

180 

160 

140 

120 

100 

80 

60 

40 

20 

0 

ICOs that Failed at Funding 

Later Defunct Coins 

Note: ICO failures includes ICOs who failed at funding and those that failed after their ICOs 

• Approximately 64% of potential ICOs failed before or after their ICOs in 2017. This is a higher failure rate than seen among 

startups in the first year. 

Source: DigRate, Morgan Stanley Research 





2015 2018 

Source: DigRate, CoinCodex, Morgan Stanley Research 




Thesis break down: Store of value 

2017 2018 

Trailing 30 day Correlation between daily S&P500 and Bitcoin Price movements 

0.6 

0.5 

0.4 

0.3 

0.2 

0.1 

0.0 

-0.1 

-0.2 

-0.3 

-0.4 

Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Oct-17 Dec-17 Feb-18 Apr-18 Jun-18 Aug-18 

Source: bitcoinity.org, Thomson Reuters, Morgan Stanley Research 




Thesis break down: Disruption Advantaged Refuge for Depreciating Currency 

Spring 2018 Summer 

Bitcoin value ($) 

25,000 

20,000 

15,000 

10,000 

5,000 

0 


Bitcoin Daily Trading Volume ($mn) 

6,000 

5,000 

4,000 

3,000 

2,000 

1,000 

0 






Current Thesis: New Institutional Investment Class 

• Cryptocurrency fund AUM US$7.11bn 

(CryptoFundResearch estimate). 

2017 Present 

• Types: 48% hedge fund, 48% venture capital, 3% 

private equity. 

• Location: 50% US, 9% China/Hong Kong, 6% UK. 

250 

200 

150 

100 

50 

0 

Number of cryptocurrency funds created 

220 

198 

107 

31 32 

45 

Prior 2014 2015 2016 2017 2018 

8000 Crypto Assets Under Management (USDmn) 

7110 

7000 

6000 

5860 

5580 

5000 

4000 

3000 

2200 

2000 

1000 190 380 

675 

0 


Source: CryptoFundResearch , Morgan Stanley Research 


12/18/17 

12/22/17 

12/29/17 

01/05/18 

01/11/18 

01/18/18 

01/24/18 

01/30/18 

02/05/18 

02/09/18 

02/15/18 

02/22/18 

02/28/18 

03/06/18 

03/12/18 

03/16/18 

03/22/18 

03/28/18 

04/04/18 

04/10/18 

04/16/18 

04/20/18 

04/26/18 

05/02/18 

05/08/18 

05/14/18 

05/18/18 

05/24/18 

08/10/18 

08/16/18 

08/22/18 

08/28/18 

09/04/18 

09/10/18 

09/14/18 

09/20/18 

09/26/18 

10/02/18 

10/08/18 

10/12/18 

10/18/18 

10/24/18 



Current Thesis: New Institutional Class 

2017 Present 

Daily CME Exchange Futures Volume 

10000 

8000 

6000 

4000 

2000 

0 

• Contract Unit: 5 bitcoins 

• Price Quotation: USD per BTC 

• Final Settlement Procedure: Delivery is by cash settlement by reference to the Final Settlement Price, equal to the CME CF 

Bitcoin Reference Rate (BRR) on the Last Day of Trading 

Source: CME Group, Morgan Stanley Research 





Average daily BTC/USD change (30 day trailing average) 

2017 Present 

16% 

14% 

12% 

10% 

8% 

6% 

4% 

2% 

0% 

Aug-10 Aug-11 Aug-12 Aug-13 Aug-14 Aug-15 Aug-16 Aug-17 Aug-18 

Source: bitcoinity.org, Morgan Stanley Research 





• Fidelity Digital Asset Services: Crypto trading and storage service 

2017 Present 

• Bain Capital: Led $15M Series B in Seed Cx Institutional Trading Platform 

• Genesis Trading: Has lent more than $500M in cryptos since March to institutions--$130M outstanding now 

• Goldman Sachs & Galaxy Digital (Novogratz crypto bank): Invest part of $58.5M round in BitGo (crypto 

custodian) 

• SETL: Granted license by France to operate CSD 

• Vertex: Invests in Binance for a Singapore-based crypto exchange 

• Coinbase: Raises $500M at $8B valuation to be crypto’s Charles Schwab/Fidelity/Nasdaq 

• Gemini Trust: Hires Nasdaq to conduct market surveillance 






What’s preventing more institutional investors to get involved? 

2017 Present 

From our client conversations we find three major obstacles preventing large scale investment in the 

cryptocurrency space: 

• Underdeveloped regulation so asset managers don’t want to take on the reputational risk 

• Lack of a custodian solution to hold the cryptocurrency and private keys 

• Lack of large financial institutions and asset managers currently invested 



Bitcoin and Environmentalism: Mutually Exclusive 


Total Energy Consumption (Megawatts) 

16,000 

14,000 

12,000 

10,000 

8,000 

6,000 

4,000 

2,000 

Electricity Consumption in a year 

based on estimated chip orders = 

Monthly power consumption of 14-16 

mn US homes 

Electricity Consumption a year from 

now based on Bitcoin value at $10K = 

Consumption of ~5mn US homes 

Electricity Consumption of 

3-4 million US homes 

0 

23-Dec-11 23-Dec-12 23-Dec-13 23-Dec-14 23-Dec-15 23-Dec-16 23-Dec-17 

Note: Energy consumption estimated based on global mining hash rate multiplied by average Joule/gigahash/s energy usage, which we assume declines linearly from 1.5 in 

2014 to 0.16 in May 2018 

Source: blockchain.info, Morgan Stanley Research estimates 



Falling equipment prices: Predictable. And will drive electricity use higher. 

Source: camelcamelcamel.com, Morgan Stanley Research 


Regulation of ICOs and Cryptocurrencies Globally 

IV. Regulatory view on Bitcoin 

Degree of regulation varies significantly, with the US seeing moderate levels 

Note: Green area represent country where government has not provided guidance on regulation. Red area indicates that country has prohibited blockchain in some capacity. Source: Medium 


Malta 

Belize 

Seychelles 

Hong Kong 

British Virgin Islands 

USA 

South Korea 

Samoa 

Canada 

UK 

Estonia 

Japan 

Scam 

Russia 

Singapore 

Turkey 

Poland 

Armenia 

Cayman Islands 

Vanuatu 

Argentina 

N/A 

Luxembourg 

Mongolia 

Bahamas 

Singapore 

Ukraine 

Australia 

Brazil 

Indonesia 

Thailand 

New Zealand 

Switzerland 

Netherlands 

Decentralised N/A 

Taiwan 

Mexico 

Panama 

India 

Isle of Man 

Chile 

Denmark 

Israel 

Norway 

Bulgaria 

Finland 

UK 

Hong Kong 

N/A 

USA 

Singapore 

Turkey 

South Korea 

Brazil 

Canada 

Decentralised N/A 

India 

Japan 

Netherlands 

Poland 

Scam 

Argentina 

Australia 

British Virgin Islands 

Russia 

Cayman Islands 

Chile 

Seychelles 

Ukraine 

Malta 

Belize 

Bahamas 

Estonia 

Finland 

New Zealand 

Norway 

Panama 

Switzerland 

Thailand 

Armenia 

Bulgaria 

Croatia 

Czech Republic 

Denmark 

Dubai 

France 

Indonesia 

Isle of Man 

Israel 

Luxembourg 

Mexico 

Mongolia 

Samoa 

Singapore 

South Africa 

Taiwan 


Crypto activity driven by regulation 

Exchanges are legally moving to Malta (they call themselves Blockchain Island) 

1,200 

1,000 

Cryptocurrency trading volume by legal location of exchange (USDmn) 

Allocations as of April 2018 

Volumes as of August 2018 

25 

20 

Number of cryptocurrency exchanges by legal location of exchange 

800 

600 

15 

400 

10 

200 

5 

0 

0 

Source: CountMarketCap.com, company websites, Morgan Stanley Research. For the left chart Binance is in Malta and OKEx in Belize. Volume from one day in April but the relative exchange rankings are still comparable if several days are 

averaged 



Regulators Watching Closely… in the US 

• On cryptocurrency trading, “Central to determining whether a security is being sold is how it is being sold and the 

reasonable expectations of purchasers.” 

-- William Hinman, head of the Division of Corporate Finance for the SEC 

• “I personally think that cryptocurrencies are here to stay. I think there is a future for them. I’m not sure they ever come 

to rival the dollar or other hard currencies, but there’s a whole section of the world that really is hungry for functioning 

currencies that they can’t find in their local currencies. There’s 140 countries in the world, every one of them has a 

currency. Probably two-thirds are not worth the polymer or the paper they’re written on, and those parts of the world 

rely on hard currencies. Bitcoin [or another] cryptocurrency may solve some of the problems.” 

-- Christopher Giancarlo, Chairman of CFTC 

Source: cnbc.com, cnn.com, Morgan Stanley Research 



Regulators Watching Closely… in Europe 

• “The subsequent question is what do we do with those ICOs that are outside the regulatory world. We will assess that 

as a board. We expect to report by the end of the year.” 

-- Steven Maijoor, Chair of European Securities and Markets Authority 

• “The necessary computer processes for the mass implementation of cryptocurrencies are so expensive and energyintensive 

that it could not work, but that (he) did not want to speak for the future (20 to 30 years)” 

-- Olaf Scholz, Germany’s Finance Minister 

• “It could be more efficient to prohibit banks and other financial institutions from holding and selling cryptocurrencies, 

than to directly regulate crypto.” 

-- Andrea Enria, Chairperson, European Banking Authority 

Source: reuters.com, cointelegraph.com, Morgan Stanley Research 



Regulators Watching Closely… Asia 

• On Japan’s FSA permitting the Japan Virtual Currency Exchange Association to police and sanction any exchanges, 

“It’s a very fast moving industry. It’s better for experts to make rules in a timely manner than bureaucrats do.” 

--Senior FSA Official, Japan 

• “We have to carefully consider the regulatory approach for these platforms because they are new technology and may 

not qualify as securities. They do not fit in the custodian, audit or valuation requirements, for instance, normally 

expected under the Securities and Futures Ordinance.” 

-- Carlson Tong Ka-shing, outgoing chairman of Hong Kong’s Securities and Futures Commission 

• On issues surrounding cryptocurrency firms setting up local bank accounts in Singapore, “We should not be trying to 

create an extremely lax regulatory environment in order to attract that kind of business…What we are trying to do is to 

bring the banks and cryptocurrency fintech startups together to see if there is some understanding they can reach… 

Some of these [crypto] activities are indeed quite opaque. I would not blame the banks for not opening the bank 

accounts.” 

-- Ravi Menon, Managing Director of Monetary Authority of Singapore 

Source: reuters.com, newsbtc.com, bloomberg.com Morgan Stanley Research 


V. Bank/Institutional efforts 

Central Bank Response 

• Monetary policy: Global central bank discussion around whether to introduce a digital version of 

paper notes and coins (cash) has reduced over recent months. Sweden is still to make a decision 

over whether to introduce an e-Krona but provide an update on the technicalities of such a system. 

Other regions investigating include South Korean province Gyeongbuk to replace city-issued gift 

certificates, Thailand to facilitate bank liquidity and risk management 

and India starting research to see if a digital rupee would be less costly 

than paper cash. China’s central bank continues to research the topic. 

• The BIS has introduced a database of cryptourrency related regulatory 

announcements which find that most new announcements are related to 

warnings about the markets (chart). 

Very few are about central bank digital currencies. 

100 

CBDC 

90 

Warning 

80 Interoperability 

70 

AML/Infrastructure 

Legal status 

60 

50 

40 

30 

20 

10 

Source: BIS, Morgan Stanley Research 

0 

H1 

2015 

H2 

2015 

H1 

2016 

H2 

2016 

H1 

2017 

H2 

2017 

H1 

2018 


V. Bank/Institutional efforts 

Bank’s Response to Bitcoin: Limited 

Who clears Bitcoin futures? 

Yes 

No / Still Reviewing 

 

GS 

 

JPM 

 

• On a case-by-case basis 

• Requires 100% margin for some trades 

• Exploring the potential for market-making 

ABN Amro 

• Only for certain clients who request 

approval in writing 

• Assesses client’s trading systems and track 

record in meeting risk limits 

 

 

 

 

BAC 

C 

RBC 

SocGen 

 

Interactive Brokers 

• Allows investors to take a short position 

 

Wedbush Securities 


VII. Blockchain as a disruptor 

Blockchain through the MS FinTech Gauntlet 




Where Blockchain Works Best, First 

• Trusted/known participants on both sides of transaction – e.g. B2B payments 

• Transaction fee rates at risk from more efficient technology – Cross-border payments 

• Trade settlement 

• Client data handling – KYC, Client Onboarding etc. (although APIs may be more efficient) 



Banks Around the Globe Testing Blockchain Across a Wide Range 

of Use Cases 

Europe Use case Status 

ABN Amro Escrow management solution Commercially launched 

Allied Irish Bank Domestic interbank payments Pilot 

BNP Paribas Trade finance Pilot 

Credit Suisse Syndicated loans Commercial launch expected in 2018 

Deutsche Bank Know Your Customer Proof of concept 

Societe Generale Agricultural commodity trade Successful testing 

North America Use case Status 

Bank of America Trade finance Proof of concept 

Bank of New York Mellon US Treasury bond settlement Rolled out 

Citigroup Digital payment solution for private securities Pilot 

Goldman Sachs Equity swap trading Testing 

JP Morgan Cross-border payments Patent filed 

Wells Fargo Private label MBS securitization Testing 

Asia Use case Status 

HSBC Trade finance Successful testing 

Hana Financial Group Digital loyalty network Building 

Korean Banks Customer identification Pilot 

Mizuho FG Derivatives trading Successful testing 

Woori Cross border transaction processing Pilot 



Banks’ Response to Blockchain: Proofs of Concept Proliferate 

Marco Polo Initiative 

Fusion LenderComm 

Distributed Ledge for 

Swap Trading 

BNP, Commerzbank, ING, 

TradeIX, R3 

What: a solution for postshipment 

trade financing 

powered by the TiX platform from 

TradeIX and R3 Corda 

blockchain technology 

Roll Out: Announced intentions 

to pilot 

BNP, BNY Mellon, HSBC, ING, 

State Street 

What: blockchain-based online 

marketplace for syndicated 

loans, offering real-time credit 

agreement, etc. directly from 

agent bank loan servicing 

platforms to lenders 

Roll Out: Became commercially 

available in Apr. 2018 

GS, JPM, Citi 

What: tracks swaps contracts 

post execution, record 

amendments or terminations of 

the deals, stock splits and 

dividends. 

Roll Out: Completed pilot 

Source: Company Data, Morgan Stanley Research 


Key Infrastructure Use Cases of Blockchain by Banks 


Utility Settlement 

Coin 

BNY Mellon 

What: Blockchain-based 

platform for US treasury bond 

settlement. Serves as an internal 

backup to the core system 

Roll Out: In use at BNY Mellon 

BARC, BK, CIBC, CS, DB, 

HSBC, MUFG, NEX, SAN, 

STT, UBS, Clearmatics 

What: Asset-based digital cash 

instrument on blockchain 

technology for global institutional 

financial markets 

Roll Out: Entering Phase IIIb of 

pilot 

JPM launched with 75 

participating banks 

What: Leveraging Quorum, a 

permissioned variant of 

Ethereum developed by JPM, to 

deliver faster international 

payments for correspondent 

banks 

Roll Out: Launched September 

25, 2018 

ASX, Australia’s Stock 

Exchange 

What: Retooling legacy systems 

from CHESS to Distributed 

Ledger on Digital Assets 

Holdings Platform 

Roll Out: Targeting Release 2Q 

2021 

Source: Company Data, Morgan Stanley Research 


Key Infrastructure Use Cases of Blockchain by Banks 


Prudential 

ING 

Fidelity 

Santander 

Product: Fasttrack Trade 

What: teamed up with StarHub in 

Singapore to launch a 

blockchain-based digital trade 

platform for SMEs to be able to 

find business partners and 

distributors, make payments, and 

track goods 

Announced: November 2017 

Roll Out: In service 

Product: Zero-Knowledge Set 

Membership 

What: cryptographic method that 

allows a party to prove to another 

party that a given system is true, 

without conveying additional 

information 



Product: Trade Platform 

What: plans to build a scalable 

infrastructure and the platform 

will custody bitcoin, etherum and 

others. Fidelity will hold the 

cryptocurrencies in cold storage. 

Announced: October 2018 

Roll Out: Early 2019 

Product: One Pay FX 

What: a blockchain based app 

for cross-border FX, initially to be 

rolled out for Santander’s 

customers in Spain, U.K., Brazil 

and Poland 

Announced: May 2016 (Spain) 

April 2018 (others) 


Source: techwireasia.com, ibtimes, forbes.com, coindesk.com , Morgan Stanley Research 



Blockchain Use Cases by Corporates 

MetLife Asia 

Pemex 

Maersk 

Walmart 

Product: Vitana 

What: worlds first automated 

insurance product for gestational 

diabetes launched in Singapore. 

Utilizing blockchain to securely 

connect customers electronic 

medical records via mobile 

device in order to issue an 

insurance policy within minutes 

Announced: August 2018 


Product: Beluga Pay 

What: pilot program begins with 

one Pemex gas station that will 

allow payment via the 

cryptocurrency Beluga Pay. 

Target is to onboard over 100 

gas stations using Beluga Pay. 



Product: TradeLens 

What: Maersk and IBM 

announced intent to established 

a joint venture to conduct global 

trade using blockchain, 

TradeLens is their distributed 

ledger technology (DTL) platform 

for supply chain. TradeLens 

currently has only one carrier on 

the platform, Pacific International 

Lines 

Announced: January 2018 


Product: Walmart Food 

Traceability Initiative 

What: Walmart is asking 

suppliers to trace leafy green 

products back to the farm by 

using a blockchain technology 

platform built in collaboration with 

IBM 

Announced: September 2018 

Roll Out: September 2019 

Source: businesswire.com, medium.com, coindesk.com, walmart.com, Morgan Stanley Research 


Blockchain’s Final Stop? 

Source: Clipart.com, Morgan Stanley Research 


AI and Blockchain are Mortal Enemies 


Watch out for Quantum Computing 

Source: clipart.com, Morgan Stanley Research 


VIII. MS Research coverage 

MS Research on Cryptos/Blockchain 

• Diversified Financials: Exploring global cryptocurrency regulations (21 Aug, 2018) 

• Cryptocurrency: Why a Country May Be Interested in Digital Currency (8 May, 2018) 

• Crypto Mining: After the Gold Rush (1 May, 2018) 

• Cryptocurrency: Where are Exchanges Based? (25 April, 2018) 

• Cryptocurrency: Features of a Bitcoin Bear Market (March 19, 2018) 

• Global Utilities: Bitcoin demand > EV demand? (10 Jan 2018) 

• Global Payments, Banking, and Technology: Bitcoin Decrypted: A Brief Teach-in and Implications (18 Dec 2017) 

• Brokers: Will Bitcoin Futures on CME & CBOE Open the Door for Discount Brokers? (7 Dec 2017) 

• Freight Transportation: Blockchain in Freight Transportation: Early Days Yet but Worth the Hype (24 Nov 2017) 

• Payments and Processing: Bitcoin, Ethereum, XRP: Decrypted! Takeaways (21 Sep 2017) 

• Payments and Processing: Decrypted! 9 Key Questions Going into our Crypto/Blockchain Event (18 Sep 2017) 

• MasterCard Inc: AI vs. Bitcoin: Buzzword Battle for Supremacy. Or eventual cooperation? (21 Aug 2017) 

• Western Union Co: Circle and Ripple Bringing the Blockchain Risk (19 Jun 2017) 

• Global Financials and Payments: Blockchain: Unchained? (16 Jun 2017) 

• Global Financials and Payments: Fintech – A Gauntlet to Riches (17 May 2017) 


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Within the last 12 months, Morgan Stanley has provided or is providing investment banking services to, or has an investment banking client relationship with, 

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Sachs Group Inc, GreenSky Inc, J.P.Morgan Chase & Co., LendingClub Corp, MasterCard Inc, MoneyGram International Inc, Northern Trust Corp., On Deck 

Capital Inc, Paychex Inc, PayPal Holdings, Inc., PNC Financial Services, Regions Financial Corp, Santander Consumer USA Holdings Inc, Square Inc, State 

Street Corporation, SunTrust, Synchrony Financial, Total System Services Inc., U.S. Bancorp, Visa Inc., Wells Fargo & Co., Western Union Co, Worldpay 

Inc. 



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